What Is Financial Literacy & Why does it Matter?
Why Financial illiteracy is a Huge Problem?
Before we decode this big question, we need to understand what financial literacy is all about? What all component is involved in making anyone financially literate.
So let’s define
What Is Financial Literacy?
India is home to almost one-fifth of the world population and has a literacy rate of nearly 80 percent. Unfortunately, only 24 percent of people in the country are financially literate. Three-fourths of the Population in India does not know or understand the pressing need of managing finances is scary for a country that depends on the economy for its development.
In simple terms, it is a barometer of understanding whether the user has the fundamental knowledge to make a well-informed decision when it comes to
- Assessing their outstanding debts/bills and paying them off
- Budgeting their income right to create savings
- Understanding inflation and hedging their investment right
- Understanding which financial instrument like a mutual fund, stocks, fixed income bonds stocks, gold, real estate, etc, is right to invest
- Fight against rising inflation effectively and sustainably
Financial literacy empowers an individual to make sound decisions which s/he has to make every day in their life. These decisions have a huge impact not only on the individual’s life but also on his/her family who are directly indirectly dependent on them.
Now that you know what is financial literacy, it’s time to understand why it is so important in everybody’s life irrespective of their socioeconomic status.
Why Financial literacy is important?
India’s financial literacy is somewhere around 24 %, which means 76% of the adult population is yet to improve upon their understanding of basic financial concepts. They struggle with the fundamental concept of inflation, compounding, diversification, savings, investing, etc. This is a huge issue not only for India as a country but also for those 76 % population who are financially illiterate.
Let’s discuss why?
1. Financial freedom is directly proportional to financial literacy
Everybody has a big dream to become financially sound and independent, but that requires you to be literate about, credit, debit, saving, inflation, investing, etc, until you become financially literate you will struggle big time to navigate this world which is not fair and punishes hard to those having lack of financial knowledge. So invest in gaining knowledge and it will pay back for sure.
2. It empowers individuals to make the right financial decisions
Managing finance is largely driven by the everyday decisions one makes while spending or investing hard-earned money. Any such decisions if not made with enough information in hand can cost big time to the financial health of any individuals and their families.
So it is imperative that one has the basics in place when it comes to budgeting, savings, managing expenses, and investing as it empowers one to become good at managing finance and stay financially secure and healthy.
3. One can minimize a lot of financial loss/theft which happens due to a lack of financial knowledge
There are many incidents being reported daily where someone got robbed of their savings due to a security hack of their bank accounts or wallet accounts. This generally happens due to a lack of knowledge of how to filter between authentic or forged messages or emails.
4. People can set their financial goals
Financial literacy will help people comprehend and learn how to work on their goals. Managing student debts and emergency finances will become second nature after they will understand how to save money and beat debt payments.
Even if they won’t have a lot of extra cash in their monthly budget, becoming financially literate will help them prioritize their goals and take the measures necessary to attain them.
5. Attain Financial Security
For far too long, Indians have been timid in their financial decision-making, owing to fear or safety concerns. Even some basic lessons in financial literacy would help them in taking small steps toward the road to financial security.
Financial security contributes to the confidence that comes with bettering your financial literacy. This can help people make more confident decisions and have a better understanding of their purchases in the future. Having a small amount of money set aside over time can provide them with additional security.
6. Help raise the next generation of “Financial Wizards”
Financial literacy is a challenge, and it won’t be solved overnight. The path to attaining the pinnacle of financial education is to take small steps, which further turn into strides and leaps.
A financially educated person can become a role model for the next generation, and they’ll definitely be “financial wizards”, as they would know the concepts, the know-how, and practical financial knowledge to tackle whatever comes their way.
Not only the future generation, but anyone willing to be financially educated can benefit a lot. There won’t be any shortages of role models, as it only takes a little spark to ignite a fire!
To Sum Things Up:
You have all the right to be financially free but for that, you need to prioritize educating yourselves on finance and money fundamentals without fail. Start with the basics like
- What is Money?
- How does money work?
- What is budgeting?
- What is Savings?
- How to track income & expenses?
- What is a mutual fund?
- How to invest in mutual funds?
- What is inflation?
- How to hedge against inflation?
- What is compounding?
- What is a portfolio and how to diversify it?
- What is risk and how to analyze it?
etc, etc, etc…….
If you feel lazy doing so, get someone who can advise you on a regular basis.
Upskilling yourselves in the financial domain will be highly productive and rewarding I can assure you of that.
If you want to be educated more on financial health and wellness do follow our FinSure publication, post your questions and we will be happy to answer any query you have regarding the financial world 🤝.